economics chapter 4

list 2 factors the lead to a change in supply without a change in cost

1. changes in technology 2. changes in production costs 3. changes in the price of related goods

list 2 demand solutions to a surplus

1. driving competitors out of business 2. persuading the government to buy the surplus 3. advertising to increase consumer preference for the product

what's the difference between a price floor and a price ceiling?

a price floor is a barrier intended to prevent the price of a product from falling below market price. a price ceiling is a mandate that prices for certain products may not rise above a certain point.

state the law of supply.

all things being held constant, the higher the price buyers are willing to pay, the greater the quantity of a product a firm will produce, and the lower the price buyers are willing to pay, the smaller the quantity the supplier will produce

what is the simplest solution to a surplus or shortage?

allow the price to fall or rise respectively to the market equlibrium point

why do businesses avoid cutting production to deal with surpluses?

because any competition may then take their share of the market

situation in which the change in the price of an item causes the change in the number supplied

change in quantity supplied

the demand solution to a shortage is...

discouraging demand

t/f Americans first learned the danger of price controls during the Civil War.

false

t/f a product's market equilibrium price is static.

false

t/f businesses find surpluses beneficial.

false

FOR A SUPPLY CURVE rightward shift leftward shift

increase in supply decrease in supply

the best solution to a surplus is...

increasing demand

what does the market equilibrium point on a graph represent?

price of which consumers are willing to take from the market the exact quantity of a product that suppliers are willing to put into the market

amount of goods and services a business firm is willing and able to provide at different prices

supply

what is alfred marshall best known for?

supply and demand model

chart detailing how much of a product a company could afford to make and sell at various prices

supply schedule

t/f government mandates are often the cause of shortages.

true

t/f price ceilings are often counterproductive

true

how are surpluses created?

when businesses raise their prices higher than the market equilibrium price and increase production only to have insufficient demand for their product

when do shortages occur?

when various factors hold the price of a good lower than its market equilibrium price